IT Investment Trends Vary With Company Size

In times of stress or unusual change, differences that are not apparent on the surface can find ways to express themselves. The results of a recent survey CIO Insight conducted of 468 IT budgeters in midrange (with 50 to 499 employees) and large (with 500 or more employees) organizations reveal that, when it comes to business technology, the contrast between these two camps can be stark.

What IT differences were brought about by the Great Recession of 2009? During the downturn, companies with 50 to 499 employees reported an overall tendency to meet or even spend above their original IT budget goals. Of the 75 separate budget areas covered in our survey, on average, 57 were overspent in these organizations, and only six were underspent. In contrast, in large companies with 500 or more employees, only 39 budget areas were overspent, but 16 were underspent.

In particular, computing, data center and storage hardware spending was frequently under budget in large organizations last year, while the opposite was true in midrange firms. In security, spending was mostly on budget in large companies. However, midrange organizations spent above their budgets in some unexpected security areas, such as access control (4.5 percent over budget on average) and authentication management (4.1 percent over budget). Large companies did not follow suit in either of these areas.

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When revenue is shrinking, large companies more assiduously avoid capital investments such as hardware due to the risk that the new equipment won’t be needed, as well as comparatively high maintenance costs. Smaller firms, meanwhile, tend to see the cost benefits of operational investments quickly, and they are willing to make these investments as long as they are properly scaled.

A few budget areas, it’s true, did fare similarly in 2009 between different size organizations. Our study showed that, in 2009, virtualization expenditures picked up steam markedly. On average, large companies overspent their virtualization software budgets by 4.6 percent last year, and midrange firms overspent by 3.8 percent.

Dramatic Differences

But overall, large and midrange organizations tended to differ dramatically in their 2009 IT investment experiences. In larger enterprises, application and Web platforms got more dollars than the companies had originally planned to spend, as did corporate applications such as ERP, business process management, and collaboration that helped boost productivity and resource utilization—a critical need in the midst of recession-induced layoffs and hiring freezes.

Meanwhile, the wait-and-see attitude about information security that was so evident at the beginning of 2009 clearly crumbled in midrange firms, which overspent their infrastructure security budgets by an average of 5.2 percent and their data-loss prevention budgets by an average of 5.5 percent. Hand in glove with DLP in midrange companies was significant unplanned spending on back-up hardware.

Large and midrange organizations also differed in where they cut spending from their original budgets during 2009. Large enterprises cut peripherals purchases more than almost any other budget area—by an average of 2.3 percent—and also backed off from consulting contracts. In midrange firms, average spending was right on budget in both of these areas.

Midrange firms cut most frequently in IT services, such as hosted data centers, public cloud and on-demand computing, and communications (voice and data). Services could be quite responsive to the downturn, and since midrange organizations tend to be more heavily invested in them, in proportional terms, they had more reason to reduce them as their business levels dropped.

The heavier-than-expected investment in various process-oriented application areas in large enterprises seems to have, in the end, been paid out of printer budgets. We’re nowhere near a paperless office yet, but hard copies are becoming less critical with the widespread deployment of new process, sharing and collaboration systems.

Staffing levels changed somewhat differently during the downturn as well, with 19 percent of large enterprises cutting IT personnel and only 13 percent of midrange firms doing so. This split in approaches will likely continue through 2010: Large companies expect, for the most part, that these cuts will last, while slightly more midrange firms expect to add staff rather than to cut further.