IT Budgets Rose Slightly in 2001

IT budgets in the United States increased in 2001, but not nearly as much they were forecast to rise back in January of 2001.

The IT Spending Confidence Survey from Gartner, Inc. and SoundView Technology Group, Inc. found that technology budgets owned and executed by IT departments for U.S. businesses will rise 2.5 percent in 2001 over 2000 budgets, a decrease from the initial 8 percent rise that respondents predicted in January 2001. In addition, 59 percent of respondents reported underspending against their full-year budgets through the end of September 2001.

The survey was conducted among 1,048 attendees at Gartner’s Fall Symposium/ITxpo.

In 2002, respondents expect technology budgets to rise 1.5 percent over 2001 budgets. According to Gartner, 75 percent of IT spending is typically pegged for maintenance and ongoing costs of technology integral to the business, with the remaining 25 percent of the technology budget devoted for new initiatives.

“CEOs are pressuring CIOs to hold back any nonessential technology spending because of profit pressures,” said Michael Fleisher, chairman and CEO of Gartner, Inc. “For technology providers to get at that 25 percent means fierce competition by only a few eligible segments.”

While the survey results aren’t the most encouraging, especially when compared to projections from the start of the year, it could have easily been much worse. In fact, there’s evidence a corner is being turned.

“While the growth rate has slowed over last year, it’s remarkable amid this uncertain economic environment that it is up at all. Core technology spending intent supports our conviction that the bottom has been reached,” said Mark Loehr, CEO of SoundView Technology Group. “Everyone is looking for visibility, especially into technology spending. The fog is starting to lift.”

The survey predicts that vendors in the areas of security, storage, Web-based applications, PDAs and Web integration services are most likely to attract the limited new-technology spending in 2002. Mainframe, contract labor services, and desktop products and services are low on the priority list.

“The excellent traction for security and storage is clearly influenced by Sept. 11,” said Al Case, Gartner senior vice president and co-creator of the IT Spending Confidence Survey. “The strength of Web-based applications on the CIO’s spending priority list marks the fundamental shift to the Web at the infrastructure level.”

A study on e-business spending by AMR Research came to similar conclusions — that companies will increase their overall e-business spending by 7 percent over the next 12 months, but they were planning on an 11 percent increase in the previous quarterly study.

Executives in the AMR study have been consistent throughout the last two quarters in prioritizing their e-business spending on customer management enhancements and sales initiatives, both areas where progress can be made for successful long-term advantage. It seems many executives view the current economic atmosphere as a time to maximize their existing tools and resources rather than continuing with large incremental investments in new customer or supplier applications.

Other findings from the AMR study include:

  • 41 percent of companies plan to increase their budget on sales and customer management initiatives down from 48 percent measured in Q2.
  • 31 percent of companies plan to increase their budget for supplier management initiatives, declining from 37 percent in Q2.
  • 33 percent of companies plan to increase spending on internal e-business initiatives, including employee self-service, electronic finance, knowledge portals and risk management, up from 25 percent in Q2.

Consistent with the first half of 2001, respondents to AMR’s survey stated that the main drivers for investing in e-business initiatives is cost reduction and ultimately to improve customer support and retention. Overall efficiency, increased market share and return on investment also weighed in as top priorities for the majority of survey respondents.

Telecommunications services are likely to see a boost, according to Gartner’s Dataquest unit, and the events of Sept. 11 may be one reason why. Fifty percent of enterprises in the United States expect to reprioritize and refocus their internal 2002 budgets to permit increased spending on telecommunications services, Dataquest found.

An even larger percentage of enterprises in those states directly affected by the events of Sept. 11 indicated they would shift budget dollars into both fixed and mobile telecommunication services. On-premise equipment purchases and outsourcing of communications services, however, were impacted less significantly. Nearly half of the companies subscribing to disaster recovery services will increase their dependence on those services, and 25 percent of the remaining companies are now more willing to consider disaster recovery options. In addition, telecommuting will become more prevalent for nearly 25 percent of the companies surveyed.

“From the general business operations perspective, 40 percent of U.S. enterprises indicated they would restrict business travel in the near term, only 1 percent long term, and rely on teleconferencing as the predominant alternative to face-to-face meetings with business associates, clients and suppliers, while restrictions last,” said Peggy Schoener, senior analyst for Gartner Dataquest’s Telecommunications and Networking group. “Video conferencing and online collaboration will also play an important role in communications during this period, but don’t expect these services to replace face-to-face meetings in the long term.”

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