IT Spending to Bounce Back in 2002

IT/IS spending in the United States and Europe hit rock bottom in 2001, but is expected to rebound in 2002, according a survey released by CyberAtlas Research. CyberAtlas Research and, the publisher of this Web site, are both divisions of INT Media Group, Inc.

The report, “IT/IS Industry Forecast 2002: U.S. and Europe,” analyzes responses from identical surveys presented to two different panels of high-tech experts to determine what near-term priorities remain for U.S. and European CIOs in light of diminishing sales and constricting IT/IS budgets in 2001.

“Given current economic conditions, we anticipate that IT/IS capital spending in the U.S. and Europe will increase by about 2.4 percent next year,” said Patricia Fusco, managing editor of CyberAtlas Research and author of the report. “European IT/IS budgets will be ratcheted up 1.5 percent during the first six months of 2002, but the U.S. market will remain soft, increasing less than one percent through the second quarter of 2002.”

The report found that the United States and Europe will account for $414.3 billion in sales of IT/IS goods and services in 2001, and that the average Fortune 1000 firm will spend just under $50 million on IT/IS operations this year. The average SME, with annual sales of $15 million, is likely to spend about $765,000 on its IT/IS operations this year.

But while modest increases over those numbers are expected in the first two quarters of 2002, Fusco said the outlook approaching the third quarter will be brighter.

“The economic outlook changes in the third quarter of 2002,” she said. “IT/IS vendors that supply goods and services to the public sector will be the first to benefit from sales surges created by the federal government’s implementation of Keynesian fiscal policies. Security and wireless endeavors will top the list of IT/IS spending initiatives early in 2002.”

A study commissioned by Unisys found that IT investment remains a priority for companies, regardless of their technology return on investment (ROI). The study identified what it calls a “new digital divide”, with a sizable rift in place between companies that are seeing powerful returns on investment from their information technology spending compared to those that are not.

The divide stems from how smartly companies spend their IT dollars rather than how much they spend, the survey found. Despite the technology industry downturn, nearly three-quarters of respondents said their companies are more willing to invest in IT now than they were a year ago. In addition, nearly 40 percent of respondents stated that next year’s IT budget is likely to increase, while 43 percent said it will remain the same as this year’s budget.

According to the survey, companies fall into three categories:

  • ROI Surgers (43.5 percent), who are experiencing positive ROI
  • ROI Stagnants (42.5 percent), who are experiencing nominal ROI
  • ROI Strugglers (14 percent), who are experiencing negative ROI.

Interestingly, the Surgers claimed to be making smarter IT decisions, while Stagnants and Strugglers acknowledged that their companies should make smarter IT investment decisions. This would lead some people to believe that companies can improve their IT ROI since they are aware of the problem.

“In the consumer market, the digital divide separates technology ‘haves’ from ‘have-nots’ according to who has access to technology. In the business world we found a different phenomenon: Companies with similar financial resources are separated by how wisely they put those resources to use,” said Pete Samson, Unisys vice president and general manager, Technology Sales Development. “These findings should serve as a call to action for companies — if you are not seeing positive ROI from IT spending, you risk being left behind by competitors who leverage the power of technology strategically. So find a smart CIO, partner, vendor or consultant who can help you gain a strategic advantage from technology today.”

One potential reason for the business digital divide is that companies may be investing in the wrong technologies or not focusing their IT spending on strategic areas of their businesses. The research showed that among respondents, their companies’ top IT priorities do not always track with what actually will be funded. This was particularly true in the areas of e-business, where it did not rate as the highest priority but often was well funded, and increasing productivity, performance and efficiency, which was identified as a priority but often did not receive as much funding. In contrast, upgrading systems was identified as a priority and was well funded across the board.

Another possible contributor to the business digital divide is the source of input for IT purchasing decisions. When asked with whom they consult before making purchasing decisions, those surveyed tended to cite different groups. For example, before making IT spending decisions, Surgers are more likely than Strugglers to consult with fellow senior-level management throughout the company, both within and outside of the IT department, and with general IT staff. IT vendors also are high on the list of those consulted by all three groups.

The Unisys Information Technology ROI Study was conducted in October and November. It surveyed senior-level IT professionals from a range of industries across the United States. Survey respondents characterized ROI by defining how much their companies get back in return for every dollar spent on IT — making money, breaking even or losing money.

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