Instead of handing IT over to outsourcers, midsize companies are building up their own IT capabilities.8.6 percent—that's how much it budgets at mid-market companies are increasing this year. Where's the money going? Not to IT services—outsourcing budgets are nearly flat. Instead, companies with revenues between $5 million and $500 million are building up their own IT capabilities. They're boosting their infrastructures even as they consolidate them, by investing in virtualization and storage. They're reducing telecom costs by moving to Voice over IP. And far more midsize companies are budgeting for business intelligence than last year, to better utilize customer and process information. Finally, a 10 percent rise in disaster-recovery spending underscores the importance of keeping IT systems up and running.

View the Slideshow: 2007 Spending Outlook for Midsize Firms
Here's how smaller firms are allocating their I.T. budgets this year.

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