Spending on IT Being Shifted, Not Cut

Research companies have spent the better part of the past two months trying to get a handle of the direction of IT spending. Now Gartner says IT budgets are up in many sectors in 2001, while International Data Corp. (IDC) expects e-learning to lead the IT spending parade in the education market.

Research from Gartner found that, despite layoffs and cutbacks, many organizations are increasing their IT budgets in 2001. More than half (56 percent) of the respondents to Gartner’s survey plan to spend more on IT in 2001 than they did in 2000.

Gartner surveyed 589 organizations worldwide between March and June of this year. The average enterprise in revenue was $2.3 billion. The average number of employees for these companies was 8,100, with an average IT workforce size of 286.

“While many IT vendors are having a difficult time right now, it’s important to point out that this does not necessarily translate into trouble for the organization’s IT spending budget,” said Barbara Gomolski, research director for Gartner. “Though companies have cut back on their hardware purchases, they continue to spend on services and personnel.”

Gartner’s research examined IT spending budgets by industry, and it found the economic climate has not deterred the “Type A” or leading-edge adopter industries from increasing their budgets as a percentage of revenue. Government, which some consider “Type A” because of e-government initiatives, shows an increase of 18 percent between 2000 and 2002, followed by telecommunications services, which is expected to increase IS budgets as a percentage of revenue by 13.9 percent.

But some sectors are not increasing their IT spending. The utilities segment is expected to reduce its IT budget as a percentage of revenue by 15 percent between 2000 and 2002. The construction segment’s IT budget as a percentage of revenue decreases 13.5 percent during the same period.

IT capital budgets, including hardware purchases, have been impacted more severely than operating budgets because of economic issues. The utilities sector is projected to experience a 27.5 percent decrease in IT capital budgets as a percentage of revenue between 2000 and 2002. The petroleum segment is expected to decrease 25.8 percent. The health services segment seems unaffected by the economy, with survey respondents showing a 27.6 percent increase in capital budget between 2000 and 2002. Banks are actually projected to increase capital budgets by 10.8 percent during the two-year period.

“While it’s clear that IT budgets have not been slashed as a result of the economy, it’s also evident that enterprises have shifted where they spend their dollars,” Gomolski said. “Discretionary spending, which includes expenses surrounding re-engineering and consulting, is now a smaller piece of the budget. Baseline, or nondiscretionary expenses, now consume a larger percentage of the IT budget.”

Additional findings from the survey showed that respondents said spending on internal staff consumes the biggest chunk of the IS budget at 32.6 percent. Respondents also indicated that 81 percent of their IT staff are internal staff (employees), while 19 percent are external staff (contractors, consultants or outsourcers). On average, 5.5 percent of the organization’s employees are IT professionals. After personnel costs, survey respondents spend the most on hardware (20.4 percent), software (17 percent), external services providers (14 percent), data and voice communications (12.8 percent) and facilities and other charges (3.1 percent).

According to IDC’s study “U.S. Higher Education IT Spending and the eLearning Effect, 2000-2005,” the education market will present a tremendous opportunity for IT vendors as more institutions adopt e-learning initiatives. Roughly 90 percent of all U.S. higher education institutions will offer some type of e-learning by 2005.

This will mean substantial infrastructure build-outs, which will be needed to implement and manage these programs. Hardware, software, support services and communications vendors are all positioning themselves to grab their piece of what will grow to be a $5 billion market by 2005.

“The largest portion of IT budgets is still spent on computer hardware,” said Stephen Webber, analyst for IDC’s K-College eLearning program. “However, spending on software and communications hardware used to expand and manage campus networks will grow at significantly faster rates.”

Additional findings from IDC’s research include:

  • Overall IT spending by U.S. colleges and universities will grow at an annual rate of 10.1 percent for the years 2000-2005.
  • The market for network servers will continue to grow, even as the market for institutional PCs slows.
  • The greatest growth opportunities for IT vendors will be in communication products and services and in software.
  • Smaller colleges and universities will be looking for third-party IT support services and computer training to manage new institution and student-owned devices. These schools, along with larger ones, will devote more resources to train faculty and administrators in the use of the latest technology.

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