IT spending growth slows 9 July, 2008 By Chris Talbot

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Computer Economics' annual study on IT spending, staffing and technology found that IT operational growth for 2008 is expected to be four per cent -- down from five per cent in 2005. Frank Scavo, president of Computer Economics, stressed that IT budgets are still growing, but economic conditions have slowed that growth.

"It budgets are still growing. There are more companies increasing their IT budgets this year than cutting their budgets, but the rate of growth is slowing, and I think that is significant," Scavo said.

As with any operational area, IT is very sensitive to economic conditions, Scavo explained. With uncertain economic conditions and the possibility of a recession, businesses are looking to pull back on their spending in all functional areas -- and includes IT, he said.

"They're expected to respond to tightening corporate budgets, to take their share of the cutbacks," he said.

Scavo said it's clear that the economic condition has worsened in the last two to three months, and it's possible that the expected four per cent growth in budgets will not materialize in 2008. It could be a smaller growth percentage. In fact, 25 per cent of respondents said they expect to spend less than budgeted, whereas only 12 per cent expec to spend more. That's not necessarily out of the ordinary, though.

"It's normal for IT executives not to spend all of their budget, because you don't need approval to spend less than budget, but you do need approval to spend more," Scavo said. It does reflect a conservative outlook on behalf of IT executives right now, though, he said.

Additionally, IT's priority areas have changed drastically since last year's survey (the survey is currently in its nineteenth year).

"There's really kind of a back to basics focus this year on IT spending," Scavo said.

The top priority is improving service levels, followed by disaster recovery and increasing IT security. Scavo described the top three areas as the very basic mandates of IT -- to keep the lights on, to reduce risks and to support users.

Contrast this year's top priority to last year's, and there's a huge difference. Last year, the number one priority was developing new systems, which didn't even make the top five this year.

In 2008, there is less focus on rolling out new technology and more focus on increasing and improving existing technology, Scavo said. This change in priorities will affect upgrade cycles, as the upgrading of desktops and laptops fell to the very bottom of the list. There's a much stronger emphasis on making do with existing technology in the market, he said.

At the same time IT and end-users are being asked to prolong the life of technology, they also have to make do with the same number of IT staff.

"Organizations are very reluctant to add to the headcount. They were adding last year, but this year there is very slim increases in IT headcount. So where is the additional support coming from? Organizations are continuing to look to outsourcing where they do have additional needs as a way of deferring headcount increases. This is a trend we've seen since we started tracking the outsourcing numbers three years ago," Scavo said.

Organizations are increasing their IT outsourcing, but most of it is still in the area. Only seven per cent of outsourced IT work is being sent offshore. One of the reasons for that is the cost-ineffectiveness of sending break/fix IT work overseas. It makes more sense to contract local service providers for such services, Scavo said.

"Most outsourcing work is in fact done onshore, so many of the jobs are still staying in the U.S.," he said.

Further information can be found by downloading a free copy of the report's executive summary.