IT Spending Rising Despite Recession Fears

Companies are increasing IT spending and expanding the CIOs’ role beyond IT.

According to the Gartner 2008 CIO Agenda study, the average worldwide IT budget increase after weighting is expected to go up 3.3 percent, a slight increase from 2007’s 3 percent. IT spending will rise 3.3 percent in the U.S., 3 percent in Europe and 4.5 percent in the Asia/Pacific region. The survey was conducted by Gartner Executive Programs, a membership organization for CIOs. The study included 1,500 CIOs in 33 countries and 23 industries.

Spending is rising even though 68 percent expressed concern about a recession in 2008. In part, that’s because "businesses are expecting IT to have more visibility and impact than in the past," says Mark McDonald, group vice president and head of research for Gartner Executive Programs: "The other part is inflation and legitimate operating costs will require more investment than last year."

Despite the bad news from Wall Street, CIOs’ are focusing on customers and generating new business. The top three business priorities according to the Gartner survey are business process improvement, attracting and retaining new customers and creating new products and services (up from 10th place in 2007). Reducing enterprise costs came in fifth. The top three technology priorities are business intelligence applications, enterprise applications such as ERP and CRM, and servers and storage technologies. (These were also found to be important priorities in CIO Insight’s 2008 Top Trends survey.)

In addition, about 25 percent of respondents say they are investing in Web 2.0 technologies for the first time, marking the technology’s move from an experimental to an early adoption phase.

"It’s an externally-focused set of expectations, rather than an internally focused one," McDonald says. "When the economy is tough, making a difference with information and technology is all the more important. We found the demand for change increases when economic conditions get tough, because the way I used to do it no longer works. Only a knucklehead would cut the IT budget at a time when the demand for the changes which IT can create increases dramatically," said McDonald, deliberately recalling a phrase from CIO Insight’s October 2007 interview with Dale Kutnick.

Another reason IT isn’t a target for budget slashing: recent IT spending increases have been modest, McDonald says. "IT is not the profligate spender like it was before 2000. From 2004 to 2008, the average budget increase was 2.8 percent. From 1998 to 2001, the average budget increase was 12.6 percent. 3.3 percent is still close to inflation and cost of living." And since IT is now engrained in nearly all business activities, it makes more sense to use IT to change a company’s cost structure, than to target IT as a cost center.

"Operational effectiveness and IT cost control will always be a part of any CIO’s repertoire," McDonald says. "But I would be surprised, given the spending patterns or the budget patterns, that we will see a wholesale reduction in IT spending like we did coming out of the 2001-2002 recession."

The study also found that IT spending is growing on average 4.9 percent at enterprises with a strategy of building distinctive IT capabilities that set it apart from other companies. IT budgets are up just 3.1 percent at organizations with a "generic" IT strategy.

McDonald says the 2008 agenda and the increase in spending are signs of an expansion rather than a diminution of the CIO role in companies. The Gartner study also found the average CIO’s tenure remaining steady at 4 years and 4 months, and that 39 percent report to CEOs and 23 percent to CFOs. More than half of CIOs have responsibilities outside of IT. "The CIO role is expanding. We’ve seen CIOs getting responsibility for logistics and supply chain, or for customer contact centers. If I am going to change the company’s cost structure, then as a CIO I have an opportunity to make a big contribution to the enterprise by providing more than just technology services," McDonald says.