2002: New Goals for IT Investment

By David Aponovich

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In what is forecast to be a recovery year for technology spending, many CIOs in 2002 will spend their IT dollars on software and services in search of cost efficiencies for enterprise IT systems, according to the author of a new Yankee Group report.

CIOs are expected to concentrate on things like server consolidation, application consolidation and outsourcing of development, says Andrew Efstathiou, Yankee Group program manager and author of "IT Spending: Taking a Momentary Breather, Before Reaccelerating."

Among other agenda items, CIOs will focus on trimming down multiple e-business platforms and building new ones.

"They're going to spend less on hardware and more on software and services. Software...is not as large a component as services. The majority of spending will be on services - that's where the real uptick is," Efstathiou says.

"Spending will concentrate on reducing environment complexity, increasing application integration, and implementing more customer-facing solutions to drive revenue and cost control through higher professional productivity and more efficient installation methods and techniques," he says. "Spending in these areas will be huge because they drive value for users."

Offshore development is also a growing trend, with work being sent to traditional outsourcing countries like India, Israel, Ireland and Canada, as well as to regions that are building a base of developers, including Eastern Europe and Russia, according to Efstathiou.

This has been a landmark year for IT spending - not solely for good reasons. Yankee Group reports that total spending on IT in the U.S. declined for the first time since 1954. Spending for 2001 is expected to decline 1.1% to $403 billion, compared to 2000's $407.5 billion. In 2002, spending is predicted to bounce back 3.3% to $416 billion.

Helping the growth trend is the nature of how IT resources are used - usually they're consumed quickly by the enterprise, with no buffer inventories. "With IT, you buy as you go, and soon after installing it's on its way to being consumed, only to need to be replenished," Efstathiou says.

Spending was down in 2001 due to a range of factors, including uncertainty about the direction of the economy, a pullback after Y2K spending and the bursting of the dot-com bubble.

"The biggest change (in mindset) between 2001 and 2002 is that a lot of '01 was spent (by CIOs) not sure about what they wanted to do," he says. It began early in the year when corporate execs began to feel the recession coming on and continued after the terror attacks on Sept. 11, which temporarily halted many spending initiatives.

"There was a lot of hesitating in the marketplace and on the part of CIOs," he said. As 2002 arrives, many corporate execs still have questions about whether the recession will end quickly, but he added, "I think people are feeling confident that a year from now it will be over."

Editor's note: For more on the outlook for IT spending in 2002, read "Report: IT/IS Spending Bottoms Out."