Modest recovery in IT spending: survey

A recent survey of 90 senior Canadian IT managers found that although there is still the usual caution in the market, there is also new optimism.

According to the CIO IT Spending Survey, sponsored by Canaccord Capital Corp. and CIO Canada magazine (a ComputerWorld Canada sister publication), 49 per cent of respondents plan to increase technology spending for the remainder of 2003. If so, spending growth over 2003 would be three to five per cent, an amount that caught one expert off guard.

“That was probably positive surprise number one,” said Mike Abramsky, vice-president of technology research at Canaccord Capital. “There seems to be a reversal of some of the declines and the stagnations that we’ve seen characterizing outlooks on IT spending in the last 18 to 24 months.”

“I think that surprise number two is that a small majority, 14 per cent of respondents, actually indicated they wanted to increase spending greater than 10 per cent. And, most folks didn’t seem to be waiting anymore for turnaround in end-business in order to begin spending again,” he added.

Those figures come as no surprise to Sandra Palmaro, director of business operations and strategic planning for Microsoft Canada Co. She said it is leftover money that is allowing organizations the flexibility to do this.

“So many companies did not spend what was in their budget last year because there was so much uneasiness between the kind of conservatism post-9/11 in terms of business stability then followed by the threat of war for months, then the war. A lot of the companies in 2002 didn’t spend what they intended to spend. And so I could see those companies as a result this year actually spending much more then they would have normally because they are almost making up for what they didn’t do last year,” Palmaro said.

But John Wegener, vice-president and CIO of St. Michael’s Hospital in Toronto, thought the overall IT spending growth of three to five per cent sounded high.

“I would have expected a little bit of growth over the previous year, but I wouldn’t have expected three to five per cent. I would have expected two [per cent],” Wegener said.

Although he is remaining cautious, Wegener said the industry is likely on the edge of an IT spending recovery, and that more significant growth will be seen in IT spending over the next five years.

“I think there are some major initiatives that are going to have to take place. I think the government recognizes that and is looking for ways in which they can fund health care. In Ontario, the ministry of health doesn’t fund IT…. And, we have gone without for quite a long while, St. Mike’s, for example, has gone without for an awfully long time and has suddenly decided that if it is going to move ahead and provide research education and good clinical care delivery, then it is going to have to invest in IT and it is just going to have to find the money somewhere and that’s what it’s doing,” Wegener said.

The survey also revealed that total cost of ownership (TCO) is a key component driving recent IT spending, a point Microsoft Canada agrees with.

“Definitely in terms of areas of focus, a lot of similarity [between] our thinking and the report. [The focus] on total cost of ownership, really looking at areas like standardization, consolidation, integration of existing systems. Really trying to tighten up the costs internally and getting the systems running at optimized performance from a TCO perspective is absolutely a huge focus,” said Palmaro.

She added that Microsoft’s optimistic projections for wireless matched that of the survey, which found that wireless e-mail is the most prioritized application for spending in 2003. Wirelessly enabled laptops and wireless handhelds are among those tools modestly prioritized for spending this year.

Fast forward one year, however, and wireless e-mail will drop from the top spot, according to Warren Chaisatien, a senior telecom analyst with Toronto-based IDC Canada Ltd. Although it will remain popular, other applications will soon begin “the second wave of wireless application adoption.”

He cited Web content such as sales force automation and work-force automation as vying for the number one spot in wireless deployment.

Although the drought may appear to be clearing up, Abramsky said growth isn’t happening in every IT industry, so caution is still recommended.

“It’s selective, this is not an overall, across the board return to the kind of spending that we saw in the boom years of a lot of the high-growth demand for technology. I think it’s very selective, it’s very focused on return on investment,” Abramsky said.

Palmaro said one point that surprised her in the survey was the indication that outsourcing will decline over 2003. She said it wouldn’t surprise her if there isn’t growth in terms of outsourcing in large organizations that have outsourced a lot of their infrastructure and applications over the last two or three years. “But we’re seeing growth in the smaller organizations,” she said.

IT spending is only happening where the payback is quick and almost guaranteed, said Dana Gardner, a senior analyst with The Yankee Group in Boston, adding that the pressure many organizations are feeling to keep spending down may actually help increase spending in coming years.

“The nice thing about pressure is that it tends to be what fuels the boom and bust cycle,” he said.

“So, the bad news is that people still feel under pressure, the good news is that the longer the pressure lasts, the more opportunity there will be for the need to buy when the psychology and the budgets finally recognize that they can’t wait any longer [to spend],” Gardner said.