IT, Network Spending Headed Up, Despite Economic Slowdown

IT procurement budgets are not being slowed by fears of an economic slowdown, according to a survey of Global 2000 corporations by Gartner Group, Inc.

Gartner’s survey found that 65 percent of respondents expect to increase IT budgets by 13.3 percent in 2001. And while the slowing economy may not put an end to IT spending, it is making companies examine products and vendors much more closely. CIOs are putting a fine point on the vendor selection process in order to drive maximum competitive advantage in their technology procurements. Project teams have also intensified their methodologies for selecting the equipment, software, and services that they purchase, Gartner found.

“In addition to addressing the challenges inherent in IT decisions, project teams must now counter the inevitable lengthening of purchasing cycles because of the talk of an economic slowdown,” said Jim Lebinski, vice president and research director of Gartner’s measurement vendor selection service. “Now more than ever, IT executives and the project teams they sponsor must be absolutely sure that the technology selections they make exactly meet comprehensively defined requirements.”

Lengthened sales cycles will affect the cash flow of IT vendors, many of which have already taken hits on Wall Street over the the last several months. Delays in purchasing will also translate into delayed installations of business-transforming systems such as enterprise resource planning (ERP), e-commerce, and CRM applications, which may affect the competitive positioning of firms across all industries.

Network IT professionals will also have more money to spend on their corporate network budgets this year, according to the 2001 Network World/STAT Resources IT spending survey.

The growing reliance on e-business is pushing nearly half of the large companies surveyed to invest more heavily in their networks this year. The results indicate that 2001 will be an active year in terms of network spending, especially among larger companies. A detailed analysis found that nearly half of companies with network budgets of $500,000 and more predict they’ll spend at least 11 percent more than they spent in 2000, and almost one-quarter of them expect to spend an additional 25 percent. The budget increases are not just confined to larger corporations: 40 percent of firms with mid-size budgets are predicting at increase of at least 11 percent.

The survey, which is based on a random sample of 400 qualified Network World subscribers responsible for choosing or approving network expenditures,focused on projected spending for 2001 in the following areas: capital equipment, employee labor costs, and outsourcing/services.

Other findings of the survey include:

  • 47 percent of total network budgets will be spent on capital equipment
  • 34 percent of total spending will be allocated to labor costs to run added hardware and software
  • 19 percent of total spending will be allocated for outsourcing/services
  • 71 percent of larger companies in the survey are embarking on major network projects
  • 43 percent of total respondents surveyed plan to expand their regular IT staff

Also notable among the survey’s findings is the shifting of funds to outsourcing. Large companies report that their allocation to outsourcing and services will increase an average of 38 percent in 2001 — compared to an increase of 9 percent for both small and mid-size companies. Labor costs are predicted to increase 18 percent for large companies, and 43 percent of the respondents surveyed say they plan to expand their regular staff.

Spending on IT by U.S. business organizations increased 8.7 percent as a percentage of gross revenues in 2000, compared to a 3.4 percent increase in 1999, according to a study by the META Group.

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