2010: A Replay of 2009?

The word on the street is that IT spending will be flat this year. Due to this limited funding, most CIOs will continue to keep things running but won’t advance many strategic projects.

This actually represents some positive news, given that half of CIOs say their 2009 budgets were lower than 2008. Gartner reported that 2009 IT spending was down more than 5 percent from the previous year.

So, there appears to be a slow recovery, with 2010 becoming the year that sets the pace for a 2011 rebound in spending.

While uncertainty still looms, there actually are signs of a spending recovery. Executive recruiters tell me that they are busy with companies seeking to fill either new IT executive positions or those that had been put on hold. From those I polled, there is optimism that spending will rise more than 3 percent in 2011.

We all know what controls IT spending. Obviously corporate performance is a major indicator. However, notwithstanding performance, the perception of what is to come has an ever-larger effect on the portion of profits that can be spent on IT initiatives. So IT spending has also found itself part of the stock-market investment criteria, simply because it is too big a number to ignore. Overreacting at times when news is bad should be expected.

Furthermore, debate continues in Washington over whether the economy is rebounding. While the stock market edges up slowly, most CIOs are apprehensive about the “recovery” and the dependability of business in general. The result is that companies are hesitant to open the floodgates on aggressive spending.

To make matters more complex, IT spending tends to lag frontline investments. Given that IT is often seen as a support function, many expected that spending would remain flat. As a result, most CIOs focus on improving efficiency, lowering costs and minimizing new hires.

So is any of this news a surprise? Not at all.

The economic outlook will likely remain uncertain in 2010, especially since unemployment doesn’t seem to be improving. Of course, the lack of investment keeps unemployment high–without some outside incentives, most sectors won’t see rapid growth in 2010.

The question, however, is whether this strategy is a good one. We have seen historically that pulling back IT investments for a prolonged period can be a kiss of death, especially when the market kicks in again. The real question is how to accelerate some IT investments to prevent businesses from falling too far behind.

Here are some things to consider:
1. Move more IT expenses into business units. This keeps all the dollars from being in one large IT budget. It also allows business units to defend their requests for extra spending.
2.  Show why investments need to precede–not lag–the recovery. Give historical proof that this method works and timelines that will better position the business to compete.
3.  Ask for smaller amounts of investments, allowing the business to be somewhat cautious should economic trends not improve.
4.  Don’t expect the budget you might ultimately need, but rather the dollars that will allow you to deliver some portion of the overall product strategy.
5.  Commit to product reviews, perhaps every 90 days. This way, executives can feel that they can change priorities if and when necessary.

We still have a ways to go. Flat is not necessarily bad–it means ramping up northward!

Arthur Langer is senior director of the Center for Technology, Innovation and Community Engagement at Columbia University.  

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