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Findings: IT Spending is Rising Across the Board

By Allan Alter  |  Posted 02-09-2007 Print

Finding 1:
IT Spending Is Rising Across the Board
IT executives are optimistic about their company’s prospects: Four out of five respondents to our survey expect their company’s revenues to increase. And to help revenues grow, companies are boosting their IT budgets. The news this year is that large companies are increasing their IT spending by almost 8 percent, quite a turnaround from last year’s drop in spending. That, combined with increases by small and midsize companies, brings IT spending up to 7.6 percent (or 12 percent, when weighted to reflect the fact that small companies far outnumber large companies). Part of the reason the dough is rising: Healthcare organizations and manufacturers are continuing to boost IT spending by double digits.

Finding 2:
The Surge in Spending Cuts Across All Technologies
This year’s survey tracks 50 different technologies and IT services, and very few are showing declines in spending. Compared to 2006, more companies are budgeting for almost all the technologies and IT services that we track. And except for mainframes, actual year-to-year spending is going up across the board. Our survey also has good news for Microsoft and its Vista operating system: Nearly 9 out of 10 companies plan to invest in operating-system upgrades.

The largest spending increases will be in infrastructure, equipment and security. Specifically, those increases are going toward virtualization and Web services/SOA, a clear indication that these are becoming
bedrock technologies. Spending on disaster recovery and business continuity is also increasing substantially, even though most Sarbanes-Oxley compliance work has been done. And storage spending is
up, thanks to the vast amounts of data that companies are collecting.

Spending on applications is also rising, and generally matches the priorities and top technologies uncovered in our January 2007 Future of IT survey. Compared to 2006, we see a whopping 17 percent
increase in budgeting for business intelligence, and spending on analytics is rising faster than any other software category, trailed closely by Web 2.0 technologies and customer self-service applications. ERP
and CRM outlays are also increasing, though other surveys have signaled a growing interest in standalone enterprise applications.

There are exceptions to this relatively aggressive spending picture: Although process improvement is a top priority, spending on business process management and modeling software is seeing only a modest
increase. Outsourcing spending is also increasing slowly; hardly surprising, given the dissatisfaction with outsourcing vendors we’ve found. And spending on services is going up more slowly than any category we track. Still, the upbeat spending picture for 2007 is consistent with several trends we noted in our Future of IT and Top 30 Trends studies: optimism about the economy, concerns about security, the need to improve customer service, and the a desire to use IT to help companies grow.

Finding 3:
Staff Reductions Are on the Way at Large Companies
One in three companies with revenues of more than $1 billion expects to reduce IT staff in 2007. And despite expected increases in overall IT spending, many large companies will be looking for other ways to trim IT costs. The principle points of attack? Consolidating IT infrastructure, replacing aging systems, and renegotiating vendor contracts—though firms are budgeting more for PCs and servers than a year ago. Large companies are also planning to increase spending on IT outsourcing by over 4 percent. Meanwhile, most IT executives continue to think their companies aren’t spending enough on IT to support their business strategies, but fewer think so than last year—as should be the case, given the increased spending on hardware, software and systems spending reported in Finding 2.

Finding 4:
IT Executives Are Comfortable with User Involvement in IT Spending
It’s a rare IT organization that has a total lock on their company’s IT spending. On average, at least 20 percent of the IT budget falls outside the IT group’s purview. It appears that IT executives actually expect their peers on the so-called “business side” to be involved: Only a third complain that executives outside IT have too much control over IT spending, and more than 80 percent feel that IT spending levels are regarded as either appropriate or insufficient. That shows IT executives feel that others trust them, and suggests that making the case for spending more on IT has not usually been too hard a sell.


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