IT Investment Trends Vary With Company Size

By Guy Currier  |  Posted 06-24-2010

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.

Call Them Unpredictable

Call Them Unpredictable

Hardware spending fared similarly last year in organizations of both sizes. A little more than a third of midrange and large organizations spent more on servers than they expected, while more than a fifth spent less. The overspenders and underspenders canceled each other out somewhat in the averages, making server spending look close to budget overall. However, this level of unpredictability--with well over half the organizations being either above or below budget--was higher in servers than in any other budget area.

Such unpredictability occurs whenever a new technological development causes a quick shift in established practice. In the case of servers, the recession happened to coincide with the availability of new utilization technologies, creating new ways to organize and employ servers. Organizations that adjusted late to this infrastructure model found that their server budgets were unnecessarily large.

The same phenomenon happened in large enterprises with client systems and the client-based productivity applications that are so frequently tied to new client deployments. In both cases, nearly as many large organizations were under budget as were over, as needs changed rapidly with a swiftly shrinking workforce, and companies adjusted unevenly.

In midrange organizations, wireless networking was the next most unpredictable technology in 2009 (after servers), as a quarter of these firms overspent and nearly as many underspent. In this case, it seems likely that companies that went over budget had not anticipated the growing demand for wireless earlier. We saw the inverse case with servers and client systems, where the companies that spent below budget had actually not anticipated the lack of demand for these systems.

Disappearing Trends

Once we look at what's going on this year, we can understand how exceptional 2009 was. Many trends from last year seem to be disappearing rapidly in 2010--including these sharp differences we've been noting between midrange and large companies.

As expected, organizations in both categories share top budget growth in virtualization: an average of 16 percent higher in 2010 for large enterprises and a whopping 25 percent for midrange firms. But storage--particularly storage-area networks (SANs) and back-up hardware--also figure significantly in 2010 plans on both sides, with

15 percent SAN budget growth expected in large companies and 17 percent in midrange firms.

Another similarity between different size organizations now that the economic crisis is past is that both are strongly renewing their spending in servers. Tellingly, 2009's unpredictability in server spending has vanished in this year's budgeting. So while server spending was flat on average last year because many firms unexpectedly spent less than their budgets, it looks very much as though those firms are now back and ready to buy again.

Lastly, midrange and large enterprises are cutting back somewhat similarly in 2010, especially in printer purchases. This is one of a few examples of how quite different investment patterns during the recession are fading now in a recovery. Large enterprises spent an average of 3.8 percent less on printers than budgeted in 2009, while midrange firms were more or less on budget. This year, though, both groups expect to reduce spending significantly.

Even though midrange and large companies are becoming more comparable in their 2010 IT plans, there remain the usual differences in the kinds of technologies that appeal, and in the length and form of the purchase process. But this year looks nothing like the split experienced in 2009.

For a midrange firm looking to take advantage of current growth opportunities and perhaps become a large one, acting--technologically speaking--like a bigger competitor looks like a smart strategy. And large enterprises have a similar chance to emulate their smaller brethren and find ways to be more nimble and focused.

Guy Currier is executive director of research at Ziff Davis Enterprise.