Outlook mixed on IT spending for this year

IT spending is an uncertain area, and as experts look ahead into the new year, they are finding little clarity.

Several analyst firms have released their spending forecasts and predictions, many of them with mixed results. CIOs and IT decision-makers are also unsure of how their dollars will fall.

Mark Groleau, controller for both Fox 40 International Inc. and Fluke Transportation Corp. in Hamilton, Ont., said both companies had undertaken fairly large IT implementation projects in the last two years.

“With Fox 40, just this past year, we undertook an enterprise-wide turnover of software,” Groleau said, adding that this type of huge investment could mean that investing for the next year will be at a minimum. “We’re on hiatus for the coming year, but that’s because we made this investment and we want to make sure we’re reaping the benefits.”

Groleau noted that the main driver for last year’s software overhaul was ROI, and he expected that to continue to be a main driver for the future.

Many companies may be in the same situation as Fox 40 and Fluke, having taken a chance in 2002 with new software implementations, but are now cutting back. But Groleau said it’s as if companies that have not taken a leap of faith and invested in technology have dug themselves a hole. So, although there may be some large purchases made by these organizations scrambling to play catch up, many organizations might decide to take a break and let the software they already bought do its job.

“After Y2K, there was a frenzy of new technology and people like us went to that bandwagon, and then it’s like you’re tired and you want to get back to running your business, putting in some face-to-face time with your customers” Groleau said.

Another IT manager at a national energy company based in Calgary, who requested anonymity, said the software market in Canada will maintain its current level or grow as long as the tools are bringing in revenue or focusing on cost cutting.

The company also spent the last few years developing enterprise-wide applications, and has no plans for any large IT buys this year.

“We would be looking to augment existing functions within our ERP system,” the manager said.

IDC Canada Ltd. recently released its forecast for the Canadian IT market. The news was mixed. IDC called for gradual recovery, however it also noted there is a downside to every forecast which, in IDC’s view, is a smaller increase in spending.

Vito Mabrucco, group vice-president of the products and service research group for the Toronto-based analyst firm, said the market gets larger because IT spending continues to occur. He predicted strong growth for outsourcing and services.

Mark Gomes, director of investment and research for AMR Research Inc. in Boston, said right now the view is pessimistic.

“We’re seeing higher levels of evaluation activity,” he said, adding that evaluation often does lead to purchasing.

The market is no longer what Gomes would call “volatile,” and he said he has seen quite a bit of stabilization. “I don’t see any reason why we can’t see market growth.”

Gomes is also seeing a lot more action within install bases of current software users as they realize the ROI on their tech investments. “Even in this environment, given the low interest rates, they can implement and still see ROI,” Gomes said.

Cambridge, Mass.-based Forrester Research Inc. recently predicted one per cent IT spending growth at large North American companies next year based on early data from surveys, although it was cautioned that these findings should be taken with a grain of salt.

Thirty-five per cent of those companies responding thus far say that spending will increase 12 per cent on average, but 25 per cent of respondents expect IT spending will decrease an average of 10 per cent.

The manufacturing segment (packaged goods) will increase spending, while insurance and financial services will decrease spending slightly compared to last year, according to Forrester. Transportation is likely to show one of the largest spending downturns, and that doesn’t just include the struggling airline industry, but also B2B delivery companies like FedEx Corp. and United Parcel Service Inc.