Gartner: IT spending still rising

IT spending isn’t growing as rapidly as it has in past years, but it’s still rising, research firm Gartner Inc. said Tuesday as it released preliminary results from its annual IT Spending and Staffing Survey report.

More than half of Gartner’s worldwide respondents – 56.4 per cent of the 589 surveyed large organizations – said they plan to increase IT budgets in 2001. Only 21.1 per cent of respondents said they’re decreasing their year-over-year spending, while 22.4 per cent said their spending would be unchanged from 2000 to 2001.

Overall, Gartner forecasts that IT spending will rise 10.1 per cent in 2001 and 6.1 percent in 2002. That’s a chunky decline from last year’s growth rate: In 2000, overall IT spending rose 13.3 per cent, according to Gartner.

Still, companies aren’t taking a slash-and-burn approach to reducing IT spending, Gartner analysts said.

“We don’t get harried phone calls from clients who are crying, ‘We need to slice 25 per cent from our budget.’ In the past, that’s happened,” said Gartner research director Barbara Gomolski. She cited the Asian financial crisis as a time when companies were scrambling to drastically reduce expenditures.

“What we did see (this year) and continue to see is an increased focus on value justification,” Gomolski said.

Companies are shortening their planning cycles and focusing on near-term goals and projects that will immediately improve their bottom line, the survey found. That’s good news for service providers and bad news for hardware vendors, said Gartner research director Jeremy Grigg.

Firms, particularly those in sectors hit hard by the economic slowdown, are looking to decrease their capital expenditures, he said. Large companies’ total IT spending as a percentage of revenue is steadily creeping upward. Last year, Gartner’s pan-industry average figure was 3.5 per cent. In 2001, Gartner’s estimate climbs to 3.54 per cent, and to 3.57 per cent the year after. But companies’ IT capital budget as a percentage of revenue is dwindling, from 1.33 per cent in 2000 to 1.31 per cent in 2001. In 2002, the estimate drops again, to 1.27 per cent. The IT capital budget is a subset of total IT spending that includes most software and hardware purchases.

“Organizations want to get out of the business of buying and building and maintaining all of their IT. Increasingly, they want to be consumers of services and not purchasers of products. This is not just a short-term trend,” Gomolski said. “We suspect that there’s a lot more leasing of hardware, and the upgrading of hardware is viewed as a discretionary expense.”

Spending on external services jumped from consuming an average of 9.7 per cent of firms’ IT budgets in 2000 to an expected 14 per cent in 2001, Gartner said.

Gartner’s analysts acknowledged that their findings are out of step with the widespread perception that IT spending is dropping, but offered several explanations for the discrepancy.

Gartner’s survey includes the “hidden” IT costs other studies overlook, analysts said – spending that is authorized outside of an enterprise’s central IS organization, such as purchases by business units or departments.

The Gartner study also focused on large firms. The average surveyed enterprise generates annual revenue of US$2.3 billion and employs 8,100, with an IT workforce of 286. Grigg noted that small- and mid-size companies, which have shorter planning cycles, are more susceptible to the impact of a downturn and may be quicker to curtail their IT spending.

Gartner will release the full results of its 2001 IT Spending and Staffing Survey in mid-October, during its Gartner Symposium/ITxpo 2001 in Orlando.

Meanwhile, in related news, Merrill Lynch reported that enterprise spending might not be buoyant later this year [see story – Report: IT misery to extend through fiscal year]. The investment analyst firm reported that 72 per cent of corporate officials polled say they would not increase spending in the latter part of 2001.

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