<img alt="dcsimg" id="dcsimg" width="1" height="1" src="//www.qsstats.com/dcsuuvfw300000gkyg9tnx0uc_3f7v/njs.gif?dcsuri=/index.php/c/a/Research/Finding-a-Happy-Medium/1&amp;WT.js=No&amp;WT.tv=10.4.1&amp;dcssip=www.cioinsight.com&amp;WT.qs_dlk=XG@fWgXm21MafQsC6StQuAAAAA8&amp;">

Finding a Happy Medium

By Guy Currier  |  Posted 03-04-2009 Print

Think companies are cutting costs by reducing IT spending? Nope. They’re using IT to reduce expenses and looking past short-term investment costs to the next best place for savings: the medium-term. By Guy Currier

See a slideshow of the top 60 spending priorities for 2009.

Finding Cost-Savers

Finding Cost-Savers

So, where are IT executives looking for these medium-term benefits? The application infrastructure, management software, compliance, continuity and services--especially automated and managed services. Beyond obviously hot technologies such as virtualization and unified communications lurk areas not as well-recognized as cost-savers: These include business intelligence, knowledge management, storage services and even the banal old operating system.

These days, most IT vendors market their key offerings as money-savers. And many (if not most) of them do help companies save, if only through prosaic means, such as being more energy-efficient. But just as home-owners might see better returns from buying hybrid vehicles than by reinsulating their homes--even though both would create savings--companies also are making clear trade-offs in 2009, trimming some tools in favor of those that provide quick cost-saving returns.

Wireless? Out in 2009. Enter mobility. Systems and hardware? Really out. IT systems outsourcing, utility computing or hosted services are attractive alternatives. And even in still-very-active areas, such as software as a service, some cooling is evident. SaaS is not growing as strongly as many might expect, with IT organizations beginning to worry about medium-term benefits as they recognize how planning, rollout, connectivity issues or delivered feature sets increase the cost of new deployments or delay their moment of effectiveness.

Keep in mind, though, that when it comes to SaaS, IT leaders have proved especially bad at predicting spending. This is also true in several other notable areas.

The MVP for hype in 2008 was service-oriented architecture: In last year's survey, twice as many companies said they were budgeting SOA as this year said they actually spent on it. So before banking on SOA, business-process outsourcing, RFID or SaaS, consider that more was expected of these a year ago than actually panned out. And don't count out undersung heroes such as mainframes, communications software, videoconferencing or--yes--storage services, which all beat expectations from last year's survey.

To be sure, many technologies that seem strongest in 2009 don't yet have high market penetration. Why ignore servers, which a full 75 percent of companies are expecting to purchase in 2009, even if that's 5 percent fewer than in 2008? What makes servers weak in 2009 is that companies planning server investments are hardly changing their server budgets at all.

So some tools that are still widely invested in, such as servers or (even more so) PCs or networking, may have overall investment levels that are falling, with budget dollars shifting into other areas. Other widely-spent-on categories, such as storage equipment, have strong budgets in the companies where spending is planned. There may be fewer of them, but it doesn't matter so much.

To try to capture and combine these two contributors to changes in investment--changes in the level of investment within companies and changes in the number of companies investing at all--we created a new measure, the CIO Insight Growth Score. The formula: change in the number of companies investing + (change in investment level * percentage of companies investing).

So if two technologies each have 5 percent more companies investing in them and budget increases averaging 5 percent--but for one technology, twice as many companies are expecting to invest--then this latter technology will have a higher Growth Score. With twice as many companies involved, that technology's impact and importance will be greater in 2009.

You can see the detailed results of our IT Spending study, along with Growth Scores for 60 different tools and services, in Finding 2 of this report. And since some technologies and services have proved to be very unpredictable, we're even providing "in-context" Growth Scores--scores modified by the kind of unpredictability we saw trending from last year's study. These are illuminating: SOA and business-process outsourcing have significant potential downsides in 2009 compared with their rosy forecast, while Web hosting and telecommunications may do better than the budget data indicate.

Even in gloomy times, IT leaders struggled to say that spending will shrink for most areas, which is typical with such research. Instead of taking these figures too literally, they are useful when comparing items. For example, spending on business process management software may not actually grow by 15 percent this year, but it is probably growing about twice as fast as spending on CRM software.

But what's truly remarkable is that for one-third of the list, the number of companies that have any budget at all in 2009 has dropped. This demonstrates quite plainly the IT industry shake-out created by cost pressures. Total spending on IT may be resilient, at least outside of the largest organizations. But some technologies and services are being set aside altogether, at least for 2009.

This evidence of IT's role in reducing costs is critical to understanding the IT market today because while it's still true that many more firms are focused on revenue growth than on cost-cutting, the number in the latter camp has increased dramatically since last year.


Submit a Comment

Loading Comments...
eWeek eWeek

Have the latest technology news and resources emailed to you everyday.