Time for IT to Rise from the Ashes?

Coming off the first-ever year-to-year drop in U.S. IT spending, there’s no lack of research predicting 2002 will be a better year to be in the technology business.

According to a report by the Yankee Group, 2001 saw technology spending contract 1.1 percent, but it projects a 3.3 percent increase in 2002. That will be followed by more impressive 11.5 percent growth in 2003.

Yankee Group reports there are two reasons organizations invest in technology: to maintain existing system status quo, or to gain competitive advantage. While status-quo spending grows at a relatively consistent pace and accounts for the vast majority of IT budgets, competitive advantage spending is volatile and represents a fraction of the total technology outlay. Technology dependence coupled with rapid industry evolution makes running existing systems both expensive and unavoidable, which drives status-quo spending. Users also spend on new, untested technology with the expectation that these cutting-edge solutions will deliver unique competitive capabilities.

“Status-quo technology spending will remain consistent and continue to drive the majority of IT outlays in 2002,” said Jon Derome, a senior analyst in the Yankee Group’s BtoB Commerce & Applications planning service. “As recession-induced risk aversion fades late in 2002 and throughout 2003, spending on innovative new solutions — the IT category hardest hit in 2001 — will begin to accelerate.”

In its predictions for 2002, Gartner found that technology will maintain its potential to foster business growth throughout 2002.

“We found that across industries, geographies and businesses, the potential for IT as an engine for efficiency, growth and opportunity will remain undiminished in 2002,” said David McCoy, vice president and research director for Gartner. “However, we also found that external forces such as the evolving business climate and unpredictable international events will significantly impact how companies view the role technology plays within their business.”

Still shocked from 2001, Gartner expects businesses to approach 2002 conservatively, focusing on short-term ROI, acquiring quick-payback products and services and cutting back substantially on new IT spending. Security, privacy and safety will remain the top issues, and many businesses and programs will receive significant funding and resources for these efforts, possibly at the expense of other areas.

“One clear warning lies in waiting: when economic recovery begins, rising demand for IT will outstrip the IT budgets set during leaner times,” said Diane Tunick Morello, vice president and research director for Gartner. “As businesses prepare for economic recovery, most likely in the second half of 2002, they will again look toward IT as a growth engine into the next business cycle. Unless business and IT executives strike a balance between growth-targeted IT investment requirements and constrained IT budgets, many IT-powered business initiatives will falter or fail when the economy turns positive.”

Among Gartner’s predictions:

  • Unlike the case with other IT services, outsourcing expenditures will increase in 2002 over 2001 as a way to transfer assets, forgo capital expenditures and reduce costs.
  • More than 50 percent of mobile applications deployed at the start of 2002 will be obsolete by the end of 2002.
  • Web services will capture substantial attention in 2002, and by 2004, Web services will dominate deployment of new application solutions for Fortune 2000 companies.
  • During 2002, IT infrastructure will be pulled in two directions, with the need to follow through on cost reduction initiatives that began in 2001, coupled with the need to anticipate and fulfill critical IT initiatives.
  • During 2002, leading-edge businesses will intensively pursue integration of applications both inside and outside the enterprise.
  • Through 2004, businesses will continue to view the discipline of CRM as a critical component of corporate strategy even though past CRM implementations have failed to meet expectations.

The report “IT/IS Industry Forecast 2002: U.S. and Europe,” by INT Media Research, also indicates that IT spending will rise in 2002, particularly in the second half of the year.

“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 INT Media Research, which is a division of INT Media Group, the publisher of this Web site.

U.S. spending on IT may lag behind Europe, where IT/IS budgets will increase 1.5 percent during the first six months of 2002. The U.S. market will remain soft, increasing less than one percent through the second quarter of 2002.

“The economic outlook changes in the third quarter of 2002,” Fusco 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.”

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