Anemic IT spending growth projected for 2002

Last year, IT managers and business executives told Gartner Inc. they planned to spend 8 per cent more on technology and IT services in 2001. They were wrong. Their IT spending increased, but only by 2.5 per cent.

Asked at Gartner’s Symposium/ITxpo 2001 in October how they plan to spend for 2002, IT managers figure they’ll spend 1.5 per cent more than they did this year. But are they being conservative and hiding some of their IT budget dollars under their mattresses, or will they end up spending even less than they did this year, postponing the adoption of new technologies?

Companies can only cut back so far before they lose the ability to do business the same way and remain competitive, said Al Case, senior vice-president at Gartner. But adding new technology is way down on the priority list for companies – right after staying profitable and staying competitive.

The economy’s troubles have pushed many companies into survival mode, conserving cash until the markets recover. Gartner forecasts that IT spending will increase in only a few areas, including storage, security, development of Web services, and personal digital assistants (PDAs).

About 59 per cent of respondents reported underspending against their full-year budgets through the end of September, according to the survey of 1,048 conference attendees. The survey, conducted in conjunction with SoundView Technology Group Inc., polled IT professionals from several industries, mostly from the financial services industry, manufacturing, utilities, health care and the media.

Top-level management reporting directly to corporate officers tended to forecast their company’s IT spending a little higher than those surveyed who report to division or department chiefs, according to the report. It’s a sign that, perhaps, there’s a little extra money for a rainy day at the top, Case noted.

But it will likely be very little money indeed. Some industries, such as providers of IT outsourced services, will see declines in IT spending, according to the survey. Corporate customers may squeeze their IT services providers for better prices, eating into margins. Providers of IT services, like data center outsourcing companies, have razor thin margins already, and few costs to cut, Case said. Job cuts and wage deterioration are on the horizon in this area, he said.

On the other hand, the survey doesn’t seem to predict massive layoffs of IT personnel within companies. IT professionals who understand how to integrate the Internet into their businesses will still have jobs waiting for them.

One area of spending growth appears to be Web services, Case said. “Those particular kinds of services have labour-saving or market-expanding potential for companies,” he said. Web services can automate sales functions, and either replace internal administrative tasks or make them more efficient.

Spending on data storage to accommodate the ever-increasing archives of accumulating company information will also increase, as will spending on security.

Some part of the increased emphasis on security and storage spending comes from the Sept. 11 events and the current focus on disaster recovery and defense, Case said. The symposium was the first large gathering of IT professionals Gartner held after the Sept. 11 attacks.

Companies surveyed spent roughly three times as much on capital expenditures in support of current operations as they did on new IT initiatives – a ratio that didn’t change from last year even as companies began cutting back on IT spending. The three-to-one ratio remained intact for next year’s estimates, Case said.

Gartner, in Stamford, Conn., is at