As the IT budget season heats up, CIOs interviewed recently said they’re guardedly optimistic about their 2005 spending plans. But many IT managers are expected to increase spending on hardware and outsourcing primarily in response to pressure from corporate executives to cut IT infrastructure and labour costs.
For instance, a survey of 195 North American CIOs released this month by Forrester Research Inc. indicated that companies plan to increase their overall IT spending by an average of seven per cent next year. Spending on hardware is expected to jump by 14 per cent over this year’s levels, it said.
However, some of the anticipated hardware growth is being driven by investments companies are making in less expensive machines that are expected to produce operational cost savings over the next 18 to 24 months, said Forrester analyst Tom Pohlmann.
“Many CIOs are coming around to see that it takes some investments in better price/performance platforms, such as new blade server technologies that are starting to hit the market, to cut costs over the long haul,” Pohlmann said.
Robert Schwartz, CIO at Matsushita Electric Corporation of America’s Panasonic division in Secaucus, N.J., said that some companies seem to be more willing to invest in IT as the economy shows signs of improvement. He added that he thinks corporate executives are also starting to get past concerns that their companies overinvested in technology during the dot-com boom and the Y2k remediation effort.
“This will fuel some level of growth, but it will be tempered by selecting only those initiatives which meet ROI requirements,” Schwartz said. Panasonic’s fiscal year begins April 1, and the company won’t finalize its IT budget for the next one until December. Schwartz estimated that its IT spending could grow by as little as four per cent or as much as seven per cent.
Spending predictions by market researchers for next year are also mixed. “We’re not seeing CIOs becoming more optimistic about revenue growth and IT spending,” said Howard Rubin, an executive vice-president at Meta Group Inc. “No one wants to be hamstrung and spend more on IT and then have the economy collapse.”
Instead, Rubin said, users are shifting around their IT investments. Last year, companies spent an average of about 65 per cent of their IT budgets on “run the business” work and the remainder on new projects, according to Rubin. This year, many have tried to lower IT infrastructure costs to closer to 50 per cent of their budgets and pump more money into new projects, he said. “Companies aren’t spending more on IT; they’re just spending it differently,” Rubin said.
Hilton Hotels Corp. still allocates slightly more than 65 per cent of its IT budget to supporting business operations, said Damien Bean, vice-president for corporate systems at the Beverly Hills, Calif.-based lodging company.
Hilton’s IT budget is likely to grow five per cent next year, Bean said, although that includes the costs of supporting the planned opening of more than 140 new hotels. He added that savings Hilton has achieved through IT efficiency gains this year will be channeled into sales systems and security technologies next year.
But Bean said Hilton has standardized most of its hardware on Intel-based systems and has “already captured the benefits of commodity hardware and nonproprietary maintenance fees, all of which makes our cost structure extremely competitive but limits year-over-year savings.”
IT spending at The Guardian Life Insurance Company of America is expected to grow three per cent next year, driven by a nine per cent increase in infrastructure investments to accommodate upgrades to the New York-based insurer’s disaster recovery and security capabilities, CIO Dennis S. Callahan said.
J. Edward Clary, CIO at Haverty Furniture Cos. in Atlanta, said he won’t know what his IT budget will be for 2005 until mid-November, when the company’s board makes its final approvals. But he does know that the budget won’t be smaller than it is this year. “It would be too hard for us to recover if we tried to cut back on our infrastructure investments,” Clary said.