IT spending on rise in certain markets

At a time when IT seems to rank low on corporate shopping lists, International Data Corp. (IDC) recently released a report that found global spending to be quite healthy.

In the report entitled Worldwide IT Spending Forecast by Vertical Market, 2002-2007: North America, Western Europe, Asia/Pacific, and Rest of World, IDC said worldwide IT spending has reached US$850 billion and is expected to reach US$1.1 trillion by 2007 due to an expected compound annual growth rate of 5.4 per cent.

Discrete manufacturing (a category that includes automotive, aerospace, transportation and electronics) and banking top the list of IT spenders, with the former accounting for 13 per cent of the total amount of IT spending and banking accounting for 12 per cent.

It is no surprise that banking accounts for a hefty slice of the IT spending pie, according to Lloyd Darlington, president and CEO of technology and solutions and head of e-business at the Bank of Montreal (BMO) in Toronto.

“I think you would find that if you looked at total investments made by various industries including the financial industry and compared them, I think you would find that banks are just major investors period, with regards to capital investments,” Darlington said.

He added that when thinking about the future of IT spending, thought must be given to the past. The heady days of the late 1990s made organizations think that if they didn’t invest right away, they would be surpassed by their competitors, essentially making them “dead meat.” This same panic also fuelled a lot of IT spending in banks, Darlington said.

“And then of course that dot-com bubble burst and everyone woke up with a hangover. Over time, [organizations] developed a much more sober view of the technology level of spend and began to ask very serious questions as to where was the value for the shareholder and where was the value for the customer.”

Although the BMO has held its technology spending flat over the past four years, Darlington said he doesn’t think that the rates of increase seen in IT spending during the boom period are likely to occur again in the financial industry.

The fact that banks worldwide are experiencing bottom-line growth driven by the mortgage refinancing boom is freeing up dollars, allowing banks to spend more on IT, said Anne Lu, senior research analyst at IDC and co-author of the report.

She added that banks are also showing an increased attention to customer relationship management and branch focus, which also factor into IT spending.

When it comes to IT spending, Canadian industries usually follow the footsteps of the U.S., Lu said, adding that the relatively small Canadian IT market accounts for only five per cent of North America’s market.

She added that North America accounted for about 45.8 per cent of worldwide IT spending in 2002, but IDC expects “the weight of North America will shrink slightly in 2007, accounting for 44.6 per cent of the total worldwide IT spending opportunities.”

According to the report, both the banking and the discrete manufacturing markets put the bulk of its IT dollars towards IT services. These include IT consulting, system integration, IT operations, maintenance and support.

In regards to IT services spending, BMO spends approximately 25 per cent of its development budget on maintenance, Darlington said. “The smarter you are in managing your application portfolio, the smaller the percentage required for maintenance should be.”

Another key reason that banks are top IT spenders is because there are more ways for customers to interact with the bank. The result is that banks feel pressure to keep the infrastructure needed to convenience customers in tip-top order, said Darlington, adding that he doesn’t see those pressures ending anytime soon.